help. . . mobile home park purchase - Posted by Dwain Decell

Posted by Dwain Decell on November 09, 2001 at 11:37:35:

Thank you for responding
Sorry for the lack of information.
The park presently has 25 spaces rented six of which are owned by the seller. Singlewide spaces rent for 100.00, doublewide 140.00. Monthly gross income is 4,130.00 expenses are around 385.00 monthly. If aquired I would seek to change from renting to owner financing. Is this Wise?
The park has all city utilities. I am currently trying to determine if the existing sewer line can be run to the back of the property and maintain proper elevation. The property is long and narrow with a road going through the middle. It is just wide enough for a MH on each side of the road.
There is also a major highway in the planning that will run through the park sometime in the future. My agent is telling me this could be a huge benefit when the state compensates me for usage especially if it is developed.
I am not sure what the costs would be to develop the lots but the way the park is laid out, a slender rectangular shape with a road already established and city utilities, is ideal for development. There is room for around 50-60 more lots. I am planning on doing alot of the work myself. The city has approved expansion of the park. If the sewer line is a problem do you have any suggestions on how this could be fixed? Someone mentioned placeing a pump in the line.
The owner is asking 395k for the park. My agent thinks he can get this down to 275k-295k. because the cash flows do not support the original price. Ownere will also carry so paper. I am still in the process of getting all the detailed information.
Thanks again for helping out

help. . . mobile home park purchase - Posted by Dwain Decell

Posted by Dwain Decell on November 05, 2001 at 21:42:12:

I was recently offered a mobile home park deal I am unsure of. Seller wants 295k, he will carry some paper. I have funds to put down on the properety. Park is half developed but has city water, sewage, elect. Also has a road through the entire property which is 10 acres. He has about half of the lots rented and is renting 9 of his own homes. His gross income is about 4,200. Water, sewage, and electric lines would need to be run to establish more lots. Seems like the park would hold around 50 units. Is it wise to put your own homes on lots and rent them out? from town. Is there a better solution? This park is about 20 min. from my city. It is in a small town in the country. I have no prior knowledge about mobile home investing and have nothing to compare it to. Any advice would be much appreciated.

Thanks Dwain

Re: Rental Mobile Homes in parks - Posted by ray@lcorn

Posted by ray@lcorn on November 09, 2001 at 10:44:38:


As promised, copied below is an excerpt from my book explaining my beliefs and experiences regarding rental mobile homes. I hope this gives you some insight into the far reaching ramifications of allowing large numbers of rentals in a park.

The park you have described is essentially still in development, and as such, demands particular attention to the final product. Not included in this excerpt, but a very important consideration, is the effect rental homes have on the ultimate valuation of a park. Parks with large numbers of rented homes are always valued lower than those without, soimply as a reflection of the risk and effort involved in maintaining the income stream.

copied excerpt

Rental Homes
As we discussed earlier, one of the differentiating factors of a mobile home park as an investment is the stability of its tenants due to the expense involved in moving a mobile home. Rental homes negate this advantage. Many park owners look at rental homes as being a boost to cash flow, and on the surface that would appear to be true. The homes can often be bought cheaply, or in many cases, an owner will accept title to a home in payment for past due rents. Collecting a deposit and rent double or triple the amount of space rent seems to be found money, with no harm done to either tenant or owner.

But this is not the case. The home is usually rented to a succession of tenants who have no investment in the community, and no pride of ownership in their homes. As a result, the maintenance on the home remains the responsibility of the owner, and is often neglected. Many rental tenants will not even tell a landlord of minor problems such as leaking toilets or stained carpets for fear of reprisal or loss of deposit. If not totally ignored, the maintenance is done sporadically, and costs run abnormally high due to the transient nature of the tenant base and the relatively low amount of damage that can be sustained by a mobile home without incurring substantial expense to correct. Often the yard and space around the home is ill kept as well. I have seen parks where it was hard to tell which cars ran and which were yard art due to the proliferation of junk around rental homes.

The effect on the community as a whole is just as pronounced. Rather than fostering an atmosphere of neighborhood and shared responsibility for upkeep with the residents, the rental home tenants tend to come and go without developing friendships or ties to the community. Residents who own their homes will resent the transients, and have the impression (rightly so) that the owner of the park doesn’t care about the quality of life for the residents. They will cease to be community minded, and may even start making arrangements to leave. Prospective new home owners exploring parks for location of a newly purchased home will most likely not choose to locate in a community that looks and feels unkempt. The park owner will then begin to meet resistance for increases in space rent. I have very often found that parks with a high percentage of rental homes lag the market in space rent by as much as 25%. The reason is simple. None but the lowest quality tenants will choose to live in substandard conditions if better are available at a comparable price.

Finally, because of the depreciating nature of a rental mobile home, the cash flow from that home must be valued differently than that of the income from space rentals. Allowance must be made for increased maintenance costs, collection losses, and higher vacancies in both spaces and homes. Since the home itself will rarely outlast the spaces, it must be capitalized at a different rate. I will generally not count the rental income from a home in the gross income for the park. I value the homes separately, based on age, condition and size. In the case of badly worn or aged homes, I will actually deduct the cost of moving them out of the park from the final value of the park. In short, there is no scenario in which a rental mobile home is an asset to a mobile home park.

Also be aware that the potential exists for a park to have a rental home problem without the park owning the rental homes. Many times I have seen dozens of homes owned by other investors as rental housing, but shown on the rent roll as a space rental only. The effect on the park is the same regardless of who owns the home. I don’t begrudge investors that make it their business to rent mobile homes. I just don’t allow it in my park. When examining the rent roll, you should be on the lookout for the listing of the same name on multiple spaces. Or the tip-off may be a corporate tenant, such as XYZ, Inc. may be listed as the tenant of space #101. That same corporate name may be listed on the rent roll for multiple lots. If so, then you have probably found the owner of a rental home. Question any tenant listing that does not appear to be normal. Ask the question outright of the owner, “How many of the homes in this park do not belong to the occupant?” Again, the only way to totally insure that you have the facts regarding ownership is to require tenant estoppel letters as a condition to closing.

© Golden Key Investments, Ltd.
****end excerpt

Re: help. . . mobile home park purchase - Posted by ray@lcorn

Posted by ray@lcorn on November 09, 2001 at 09:48:38:


There isn’t enough information here to make a judgment. How many spaces are built? How many are approved to be developed? Are approvals in place for the lots and the utilities? What will it cost to develop the remaining spaces? What’s the space rent? What do the homes rent for? What is the age of the non park-owned homes? What are the current expenses?

To the question of rental homes, I advise not. rental homes are a detriment to the value of the park, and the nine already there are too many. I’ll post an excerpt from my book, “DealMaker’s Guide to Mobile Home Parks” later today that explains my feelings on the subject. (I don’t have the material on the computer I’m currently using.)